Employee ownership represents a fairer economic development strategy

Posted on Posted in News

From CA FWD:

A few years ago, the New York Times reported that state governments spend over $80 billion per year on business incentives. States, including California, offer tax reductions and other special subsidies to companies that promise to relocate jobs in state or even just promise not to move them out of state. The cost per job is usually in the tens of thousands of dollars. Despite all this taxpayer money, many of these companies end up moving or closing anyway.

There is a much better, cheaper, fairer way for California to retain jobs. With the retirement of baby boomers looming, hundreds of thousands of closely held companies will be up for sale. While some will be passed on to family members or managers, most will be sold to competitors, who often move the companies and reduce of even eliminate local staff. Other successful companies just get liquidated because buyers cannot be readily found.

Many of these businesses could very successfully be sold to an employee stock ownership plan (ESOP). An ESOP is a highly tax favored strategy to pass on ownership broadly to the company’s employees. The company sets up a special trust for employees, and the trust uses contributions from the future profits the employees help generate to buy the business. The employees do not pay for the shares—the company does and gets a tax deduction in the process, while the seller can defer capital gains taxes by reinvesting in other companies. Sellers can sell all or part of the company this way. Not only do these plans provide tax benefits, but they let sellers retain the legacy they have worked so hard to create. Meanwhile the employees gain ownership of a valuable asset—their company.

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CA FWD – Employee ownership represents a fairer economic development strategy